Nintendo cuts profit forecast as strong yen overwhelms Pokemon

[October 26, 2016]  By Makiko Yamazaki

OSAKA, Japan (Reuters) - Japanese videogames maker Nintendo Co cut its annual profit outlook by a third on Wednesday as a strong yen erodes income earned overseas and overwhelms an earnings bounce from its surprise hit smartphone game Pokemon GO.

But the Super Mario creator, which earns over two-thirds of revenue abroad, also offered an upbeat view of the future in which mobile games would be a profit driver, albeit secondary to console gaming.

The popularity of Pokemon GO sparked expectations of an earnings renaissance at Nintendo. Investors saw its embrace of mobile gaming as a sign of the company decoupling successful games titles such as Super Mario from a waning consoles business to earn money on other devices.

Nintendo profits from Pokemon GO through investments in Pokemon Co and Niantic Inc. Nintendo's president, Tatsumi Kimishima said earnings from affiliates over April-September was 12 billion yen ($115 million), mostly from Pokemon-related businesses.

"We expect our mobile gaming business to become a pillar of our profit," Kimishima said at a news briefing after Nintendo released its latest earnings report. "But our main focus remains on seeking synergies from hardware and software," he said, stressing the importance of console gaming for the company.

For the rest of the business year, Nintendo should benefit directly from three upcoming mobile titles, including Super Mario Run which will debut on Apple Inc's iPhones in December.

Yet Nintendo nevertheless lowered its operating profit view to 30 billion yen from a previous projection of 45 billion yen. The new forecast compared with the 44 billion yen Thomson Reuters Starmine SmartEstimate drawn from 19 analyst estimates.

It said it now expects the U.S. dollar to average 100 yen and the euro 115 yen, rather than the 110 yen and 125 yen it previously forecast.

Nintendo also posted a second-quarter loss as a stronger yen drowned the effect of Pokemon GO, whereas analysts had expected a profit.

From hereon, any gains from Pokemon GO will likely shrink, said senior fund manager Fumio Matsumoto at Dalton Capital (Japan).

A man walks near Nintendo advertisements at an electronics retail store in Tokyo May 7, 2015. REUTERS/Toru Hanai

"The profit contribution from Pokemon GO is commendable, but it's important to remember that the game was at its peak popularity during the quarter and that is going to be less so going forward," Matsumoto said.

SWITCH

Beyond this business year, Nintendo is counting on its first game console in four years to drive earnings growth.

The Switch is a hybrid home console and handheld device due for release in March. It will succeed the Wii U whose sales were a fraction of its popular predecessor Wii.

Nintendo released a 3-minute preview video of the Switch last week, but its shares slid 6 percent the following day as company watchers questioned the lack of revolutionary features needed to win back gamers.

Kimishima said Switch shipments will reach around two million units by the end of March.

"Hopes about the prospects for the Switch have drawn investors to Nintendo, but the results today could dampen that enthusiasm," said Mitsunari Akino, executive officer at Ichiyoshi Asset Management.

($1 = 104.1400 yen)

(Reporting by Makiko Yamazaki; Additional reporting by Hirotoshi Sugiyama and Yoshiyuki Osada; Editing by Christopher Cushing)

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